Integrated Reporting – Walk the talk, Integrated reporting framework

Integrated Reporting – Walk the talk, Even though the benefits of Integrated Reporting are largely understood, the development and acceptability of the concept is yet tardy. Unless the companies reach a level where they feel that the apprehensions are not insurmountable they will not be able to walk the talk

HISTORICALLY, corporate reporting has been focused mainly on the financial performance of companies. It provided investors with basic insight into the historic performance of the companies evaluated on key financial indicators. This helped provide the readers with indication of the companies present and potential future performance. Of late increasingly, annual reports have attempted to include sections on the corporate strategies, social and environment concerns and actions being taken by the company to work responsibly in these areas to promote community well being

Despite addition of information relating to social and environmental most financial reports still do not address the information needs of all company’s stakeholders. In order to assess fulfillment of the environmental, social and governance responsibilities of listed entities SEBI mandate listed entities to submit Business Responsibility Reports, as a part of their Annual Reports, describing measures taken by them along the key principles enunciated in the ‘National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business’ framed by the Ministry of Corporate Affairs (MCA). To start with, this requirement is applicable to top 100 companies in terms of market capitalization and would be extended to other companies in a phased manner

Integrated reporting is the integration of a company’s financial report and its corporate social responsibility or sustainability report into a single document. An integrated report provides readers with a complete picture of how an organization is performing by including non-financial information on environmental, social and governance performance along with financial information. Integrated Reporting is based on integrated thinking involving consideration of various types of capital, their interaction and impact on short, medium and long term prospects of the company and linkage with strategy, performance and governance.

Integrated reporting framework is expected to :

Support the information needs of long term investors, by showing the broader and longer-term consequences of decision making;

Reflect the interconnections between environmental, social, governance, and financial factors in decisions that affect long term performance and condition, making clear the link between sustainability and economic value

Provide the necessary framework for environmental and social factors to be taken into account systematically in reporting and decision-making

Rebalance performance metrics away from an undue emphasis on short-term financial performance; and

Bring reporting closer to the information required by management to run the business on a day to day basis.

Apprehensions impeding Integrated Reporting

Even though the benefits of Integrated Reporting are largely understood, the development and acceptability of the concept is yet tardy. Unless the companies reach a level where they feel that apprehensions are not insurmountable they will not be able to walk the talk. Following apprehensions if addressed appropriately shall pave the way for faster assimilation of Integrated Reporting

How to identify what to include in the Integrated Report

How to ensure credibility of information contained in the Integrated Report

Who will own the process of development of the Integrated Report

Professional assistance not available for compiling Integrated Report

How to quantify non financial aspects of the business

How to ensure that Integrated Report does not become a sales document

How to ensure that both positives and negatives of the business are fairly reported

How to ensure that Integrated Reporting provides a true and fair view of the business

Integrated Reporting – getting started

In spite of genuine apprehensions and concerns about Integrated Reporting , companies must realize that the benefits far outweigh the efforts and the stumbling blocks. Following is a suggestive approach for implementation of Integrated Reporting

Top management must constitute an Integrated Reporting committee with cross functional representation

Clearly communicate that the committee shall own the process of compiling Integrated Report

Lay down materiality thresholds for reporting information on Economic, Social and Environmental aspects

Involve professional content writer for clarity and conciseness in Integrated Report

Involve a credible agency for assurance of Integrated Report

Adopt a fair approach towards positive and negative aspects of in Integrated Reporting

Set a time line for compilation of Integrated Report

Look at the journey of other companies in the process of compiling Integrated Report and imbibe learnings

Acknowledge and reward the efforts of the Committee in compiling Integrated Report

Integrated Reporting is not a matter of choice. The stakeholders will in future demand information on Social and environmental aspects of business and companies which rise to the challenge shall be rewarded with higher valuations and enhanced corporate image